Click here to read more commentary
Cooperation Not Competition
by Lawrence W. Reed
"Gym Now Stresses Cooperation, Not Competition," blared a
headline in the New York Times a decade ago. The
story was about an elementary school where "confrontational" games,
team sports, and elimination rounds were changed or scrapped so
that differences between students' athletic abilities would be
Perhaps this is fine for grade-school gym class, but it would
make for rather boring Olympic Games. Were it imposed on production
and trade, it would condemn millions to poverty and early death.
Let's review some fundamental principles.
In economics, competition is not the antithesis of cooperation;
rather, it is one of its highest and most beneficial forms. That
may seem counterintuitive. Doesn't competition necessitate rivalry
or even "dog-eat-dog" behavior? Don't some competitors lose?
In my view, competition in the marketplace means nothing less
than striving for excellence in the service of others for
self-benefit. In other words, sellers cooperate with consumers by
catering to their needs and preferences.
Many people think that competition is directly related to the
number of sellers in a market: The more sellers there are, or the
smaller the share of the market any one of them has, the more
competitive the market. But competition can be just as fierce
between two or three rivals as it can be among 10 or 20.
Moreover, market share is a slippery notion. Almost any market
can be defined narrowly enough to make someone look like a
monopolist instead of a competitor. I have a 100 percent share of
the market for articles by Lawrence Reed, for example. I have a far
smaller share of the market for articles generally.
Not so long ago, XM and Sirius were the only two satellite-radio
providers in the United States. For a year and a half the federal
government prevented the two from merging, fearing that a harmful
monopoly would result. Economists argued that XM and Sirius were
competing not only with each other but as two of many companies in
a huge media marketplace that includes free radio, iPods and other
MP3 players, Internet radio stations, cable radio services, and
even cell phones-all of which, along with likely new technologies,
would continue to compete even after the merger. Ultimately,
economic reasoning prevailed and the merger was allowed.
Governments don't have to decree competition; all they have to
do is prevent and punish force, violence, deception, and breach of
contract. Enterprising individuals will compete because it is in
their financial interest to do so, even if they'd prefer not
Competition spurs creativity and innovation and prods producers
to cut costs. You wouldn't think of stopping a horse race in the
middle and complaining that one of the horses was ahead. The same
should be true of free markets, where the race never ends and
competitors enter and leave continuously.
Theoretically, there are two kinds of monopoly: coercive and
efficiency. A coercive monopoly results from a government grant of
exclusive privilege. Government, in effect, must take sides in the
market to give birth to a coercive monopoly. It must make it
difficult, costly, or impossible for anyone but the favored firm to
do business. The U.S. Postal Service is an example. By law no one
else can deliver first-class mail.
In other cases the government may not ban competition outright
but simply bestow privileges, immunities, or subsidies on one or
more firms while imposing costly requirements on all others.
Regardless of the method, a firm that enjoys a coercive monopoly is
in a position to harm consumers and get away with it.
An efficiency monopoly, by contrast, earns a high share of a
market because it does the best job. It receives no special favors
from the law. Others are free to compete and, if consumers so will
it, to grow as big as the "monopoly." Indeed, an efficiency
monopoly is not much of a monopoly at all in the traditional sense.
It doesn't restrict output, raise prices, and stifle innovation; it
actually sells more and more by pleasing customers and attracting
new ones while improving both product and service.
An efficiency monopoly has no legal power to compel people to
deal with it or to protect itself from the consequences of its
unethical practices. An efficiency monopoly that turns its back on
the very performance which produced its success would be, in
effect, posting a sign that reads, "COMPETITORS WANTED."
Where does antitrust law come into all this? From its very
inception in 1890, antitrust has been plagued by vagaries, false
premises, and a stagnant conception of dynamic markets.
The Sherman Antitrust Act of 1890 put the government on record
as officially favoring competition and opposing monopoly without
ever coming close to any solid definition of either term. It simply
made it a criminal offense to "monopolize" or "attempt to
monopolize" a market without ever saying what kind of actions
The first lawsuit the government filed ended disastrously for
the Justice Department: The Supreme Court ruled in 1895 that the
American Sugar Refining Company was not guilty of becoming a
monopolist when it merged with the E. C. Knight Company. The
evidence suggested that the merged companies would have made for a
very strange monopoly indeed-one that substantially increased
output and greatly cut prices to consumers.
In The Antitrust Religion (Cato, 2007), Edwin
S. Rockefeller explains how the self-serving legal community
invented sinister-sounding terms for quite natural phenomena and at
the same time enjoys a feeling of self-righteousness in
"protecting" the public from those evils. Such terms include
"reciprocity" ("I won't buy from you unless you buy from me");
"exclusive dealing" ("I won't sell to you if you buy from anyone
else"); and "bundling" ("Even though you only want Chapter One, you
have to buy the whole book.") Another work I strongly recommend on
this subject is a classic by economist D. T.
Armentano, The Myths of Antitrust.
In a free market unencumbered by anticompetitive intrusions from
government, these factors ensure that no firm in the long run,
regardless of size, can charge and get any price it wants:
Bottom line: Consider competition in a free market not as a
static phenomenon but rather as a dynamic, never-ending leapfrog
process in which the leader today can be the follower tomorrow.
Lawrence W. Reed
Foundation for Economic Education
"The Irresistible Force of Market Competition" by Israel
"Competition is Cooperation" by Sheldon Richman:
"Compulsion is not Cooperation" by Gary Galles:
Competition and Cooperation" by Steven Horwitz: